Hiroshima_Morphine wrote: 3) You can't eat precious metals or guns, and you lose value to convert them into food.

I agree you cannot eat them but whether or not value is lost will depend on economic conditions, especially if you or someone you care about need bullets to defend a homestead and crops.

Don't get me wrong, TEO, I still own guns and bullets. Just I no longer have an 'oooo, shiny- is there space in my gun safe?' mentality.

Okay, that was not clear from the previous post. I have avoided that mentality because of laziness. Too much maintenance on too many different weapons is a PITA. Also a PITA to have too many different calibers to purchase and store.

Hiroshima_Morphine wrote: 3) You can't eat precious metals or guns, and you lose value to convert them into food.

I agree you cannot eat them but whether or not value is lost will depend on economic conditions, especially if you or someone you care about need bullets to defend a homestead and crops.

Don't get me wrong, TEO, I still own guns and bullets. Just I no longer have an 'oooo, shiny- is there space in my gun safe?' mentality.

Okay, that was not clear from the previous post. I have avoided that mentality because of laziness. Too much maintenance on too many different weapons is a PITA. Also a PITA to have too many different calibers to purchase and store.

Urgent note to self: Cancel planned raid on H_M's homestead....

Haha- yes, in the interest of your own self-preservation, I would suggest canceling that raid.

Commies to the left of me, Nazis to the right
Here I am stuck in the middle... with you?

Expected tax cuts along with increased spending for hurricane victims and a higher debt ceiling could push the U.S. budget deficit even higher than expected.

In fact, the deficit could break $1 trillion by 2020, two years sooner than current government projections, according to a Goldman Sachs analysis.

"We have increased our budget deficit forecasts somewhat over the next few years to reflect the effect of disaster spending, expected tax cuts, and an increase in spending caps," Goldman Sachs chief economist Jan Hatzius said in a note.

Under the new estimates, the deficit will hit $750 billion in 2018, $900 billion in 2019 and $1.025 trillion in 2020. The figures represent a $50 billion increase for next year and $75 billion for each of the following two years.

If accurate, they could be quite a bit higher than what the Congressional Budget Office expects.

Figures the Treasury Department released last week showed that fiscal year 2017 ended with a $666 billion shortfall, which actually was lower than the CBO projection of $693 billion. However, the office expects the deficit to fall to $563 billion in 2018 then hit $689 billion and $775 billion in the following two years.

The 2017 debt represented 3.5 percent of GDP, an increase of 0.3 percentage points from the previous year.

CBO does not see the deficit passing the $1 trillion mark until 2022, when it is estimated at $1.03 trillion, then expects it keep rising to $1.46 trillion by 2027.

Debt and deficits have been contentious issues this year as Congress has debated the merits of the Trump administration's tax reform plan, which could amount to $1.5 trillion in relief. White House officials insist the provisions to lower corporate and individual rates would pay for themselves through increased economic growth.

"Through a combination of tax reform and regulatory relief, this country can return to higher levels of GDP growth, helping to erase our fiscal deficit," Treasury Secretary Steven Mnuchin said in a statement. He added that the tax reform plan "will help place the nation on a path to improved fiscal health and create prosperity for generations to come."

Goldman, however, projects that the government will have to raise the debt ceiling again in March. The country's debt load now totals $20.4 trillion, an increase of about 2.5 percent in 2017.

From a practical standpoint, Hatzius said the increased deficits will require the Treasury to issue more debt. That's potentially problematic because one of the main buyers of government bonds has been the Federal Reserve, which has begun to step back from its role as a player in the Treasury market. The Fed this month started the process of reducing its $4.5 trillion balance sheet, most of which is made up of bonds it bought during its stimulus efforts from the financial crisis.

Goldman projects that the Fed's operation will require the public to absorb an additional $175 billion in 2018, then $286 billion and $214 billion the following two years.

Expected tax cuts along with increased spending for hurricane victims and a higher debt ceiling could push the U.S. budget deficit even higher than expected.

In fact, the deficit could break $1 trillion by 2020, two years sooner than current government projections, according to a Goldman Sachs analysis.

"We have increased our budget deficit forecasts somewhat over the next few years to reflect the effect of disaster spending, expected tax cuts, and an increase in spending caps," Goldman Sachs chief economist Jan Hatzius said in a note.

Under the new estimates, the deficit will hit $750 billion in 2018, $900 billion in 2019 and $1.025 trillion in 2020. The figures represent a $50 billion increase for next year and $75 billion for each of the following two years.

If accurate, they could be quite a bit higher than what the Congressional Budget Office expects.

Figures the Treasury Department released last week showed that fiscal year 2017 ended with a $666 billion shortfall, which actually was lower than the CBO projection of $693 billion. However, the office expects the deficit to fall to $563 billion in 2018 then hit $689 billion and $775 billion in the following two years.

The 2017 debt represented 3.5 percent of GDP, an increase of 0.3 percentage points from the previous year.

CBO does not see the deficit passing the $1 trillion mark until 2022, when it is estimated at $1.03 trillion, then expects it keep rising to $1.46 trillion by 2027.

Debt and deficits have been contentious issues this year as Congress has debated the merits of the Trump administration's tax reform plan, which could amount to $1.5 trillion in relief. White House officials insist the provisions to lower corporate and individual rates would pay for themselves through increased economic growth.

"Through a combination of tax reform and regulatory relief, this country can return to higher levels of GDP growth, helping to erase our fiscal deficit," Treasury Secretary Steven Mnuchin said in a statement. He added that the tax reform plan "will help place the nation on a path to improved fiscal health and create prosperity for generations to come."

Goldman, however, projects that the government will have to raise the debt ceiling again in March. The country's debt load now totals $20.4 trillion, an increase of about 2.5 percent in 2017.

From a practical standpoint, Hatzius said the increased deficits will require the Treasury to issue more debt. That's potentially problematic because one of the main buyers of government bonds has been the Federal Reserve, which has begun to step back from its role as a player in the Treasury market. The Fed this month started the process of reducing its $4.5 trillion balance sheet, most of which is made up of bonds it bought during its stimulus efforts from the financial crisis.

Goldman projects that the Fed's operation will require the public to absorb an additional $175 billion in 2018, then $286 billion and $214 billion the following two years.

Commies to the left of me, Nazis to the right
Here I am stuck in the middle... with you?

From a practical standpoint, Hatzius said the increased deficits will require the Treasury to issue more debt. That's potentially problematic because one of the main buyers of government bonds has been the Federal Reserve, which has begun to step back from its role as a player in the Treasury market. The Fed this month started the process of reducing its $4.5 trillion balance sheet, most of which is made up of bonds it bought during its stimulus efforts from the financial crisis.

Ok why does this matter? Why is this really sobering?

Not because the Fed is scaling back.

Not even the $4.5 trillion (thats trillion with a "T" or $4,500,000,000,000) FED balance asset which is about or ~ 25% of the entire US GDP for 2016.

Not because they are such a significant buyer of this debt.

So why?

Because this activity is basically a shell game of the US Treasury writing debt instruments (borrowing $) and the Fed is then accepting the debt. The net effect is simply running the printing presses to cover the deficit....to the tune of ~25% of US GDP.

To put this in perspective, this is similar in concept to a person with a $100 cash in the left pocket claiming
his net worth is $100 and then spending this money on a dinner but then writing an IOU to himself from himself and putting it in his right pocket. He then claims that his net worth is still $100.

Now change the $100 to $4.5 trillion and you see why this should worry people.

The $4.5 trillion asset is only worth what can be repaid.
In theory, if the debt is worthless then the Fed is one one who takes the "haircut" and since the Fed is in effect a separate quasi-government cooperative of the member national banks they are ones who will take the loss.

The banks then would likely fail and the US FDIC insurance would protect the depositors except that the FDIC does not have $4.5 trillion so the US treasury would have to borrow the money but since their worthless debt caused the problem who would lend them the money. In addition some of the banks have been designated as "too big to fail" entities.

Either way failure is not an option when you have a currency printing press available like the Fed/US Treasury have.

I am NOT saying this is going to happen in 2017. I am saying this is a debt bubble that is unprecedented in US history. There are other nations with similar debt levels. That said the real take away here is not that it exists but rather that we are not even addressing the core cause much less moving towards a solution or at least a work out of the debt.

Last edited by raptor on Wed Oct 25, 2017 3:21 pm, edited 1 time in total.

raptor wrote:To put this in perspective, this is similar in concept to a person with a $100 cash in the left pocket claiming
his net worth is $100 and then spending this money on a dinner but then writing an IOU to himself from himself and putting it in his right pocket. He then claims that he his net worth is still $100.

Nice analogy-

Commies to the left of me, Nazis to the right
Here I am stuck in the middle... with you?

It hurts less when your currency is dominant worldwide. Using your example, I can even borrow money from people at the restaurant and still "say" my net worth is $100 if it is my restaurant. But nothing here lasts forever. The Congress writes the U.S. checks. Who writes the Congress' checks?

They will begin examining the core cause once they finish reading:

How to Conquer the Addiction of Rock Music: Written by Youth Who Have Found Freedom.

It's not what you look at that matters, it's what you see.
Henry David Thoreau

Asymetryczna wrote:It hurts less when your currency is dominant worldwide.

This is the key reason this shell game has not blown up to date.

The USD is the world reserve currency. If/when this changes the day of reckoning will follow shortly.

When this thread started the BRIC nations were trying to cobble together a competitive world reserve currency. The Euro was supposed to be the USD competitor. To date neither have worked. The EU is mired in Brexxit issues and the BRIC nations were not able to make it work. The Chinese have made tremendous in roads with exchange treaties for the yuan but alone it cannot be the world reserve currency (at least not yet wait a decade and see).

So everyone in all the world banks understand that this is a shell game. However, the world banks are too invested in the status quo to upset things.

So yes this thread has been around a while and TEOTWAWKI has not happened. That said it does not mean there is not risk.

Now change the $100 to $4.5 trillion and you see why this should worry people.

I was worried. Then I saw on the horizon a confident and sure footed leader rise from the ranks of the American Populace. A man of the people, knowledgeable of business and industry, with a temperament and demeanor that could best be called expressive and not at all insane.

This man rose to the highest office in the land and through great efforts of natural diplomacy, brilliant insight and simply stunning leadership skills was able to set us on a course for greatness.

I then realized that the dispensary was closed and they wanted me to leave. They also suggested in a not too friendly tone of voice to not use their products on premises ever again.

From this day to the ending of the world,
But we in it shall be rememberèd—
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother

Get ready for a 'substantial' slowdown in the US economy, investment bank predicts.

One investment bank is urging investors to prepare for the U.S. economy to roll over as early as 2018.

"The US economy will in all likelihood slow down substantially: there is a limit to the rise in the participation rate and the employment rate; real wages are slowing down," wrote Patrick Artus, chief economist at Natixis, on Tuesday. "Investors should therefore prepare for the consequences."

Consequences of this slowdown, notes Artus, include a brief rise in interest rates, a market sell-off and a depreciating dollar.

Natixis is a French corporate and investment bank headquartered in Paris. Natixis Global Asset Management oversees roughly $950 billion, according to its website.

The analyst also called the current level of corporate investment "abnormally high" and suggested a downward correction.

To be sure, the more mainstream investment banks on Wall Street are not nearly as pessimistic. Wall Street foresees a positive 2.5 percent change in GDP in the third quarter year over year, according to the consensus estimate collected by Thomson Reuters. The Bureau of Economic Analysis will release GDP number on Friday before the bell.

And none of the major banks see a recession on the horizon.

The American people are even more bullish. According to CNBC's All-American Economic Survey, optimism about the economy hit an all-time high earlier this month. Forty-three percent of the public believes the economy is in excellent or good condition while the four-quarter average for every major economic metric in the poll is at a record 10-year high.

Goldman Sachs is probably the most bearish on the U.S. economy among major firms, predicting 3.9 percent annual global growth through 2020, but that U.S. growth will decelerate to just 1.5 percent annually over that time.

Economic growth has been a hot topic in national politics as well. President Donald Trump has repeatedly touted the 3 percent growth target as a cornerstone of his economic plan, calling for new tax cuts to push output higher.

Republican House Speaker Paul Ryan told CNBC in September that "You're not going to get 3 percent [economic] growth in 2018 if you don't get [tax reform] done in 2017."

Natixis has a warning for clients in the note, "If US growth slows down markedly ... equity valuation and share prices will start falling."

"The US economy will in all likelihood slow down substantially: there is a limit to the rise in the participation rate and the employment rate," wrote analyst Patrick Artus on Tuesday.

The US economy has been expanding an unusually high pace in 2017.

So to the extent that this expansion is reduced that is technically a "slow down". That however does not mean a recession.

The Fed will also likely hike interest rates to encourage such a slowdown. The reason being when you have a balance sheet as distorted as the US Balance Sheet, you run the risk of igniting inflation beyond the current real rate of ~5%.

This is due to "households remain[ing] under pressure", a "home-building downturn" and economic growth slowing to "a sub-trend 2.5 per cent in 2018 and 2019", Westpac wrote in its October market outlook.

He also cautioned the Australian dollar's drop had been "a long time coming" since "commodity prices haven't been particularly supportive lately".

In particular, Mr Callow was referring to the falling price of the nation's key export, iron ore — which had been hovering around the lower end of $US60/tonne mark for the past month.

As for why the Australian dollar plunged — the most against the pound, it may have to do with the increasing investor sentiment in the UK.

On Wednesday, the UK Office for National Statistics reported third-quarter GDP had a stronger-than-expected pick-up — up 0.4 per cent over the previous quarter, its fastest pace of growth this year.

"It was a coincidence that the Australian dollar was affected by bad inflation results locally, plus Britain had strong GDP numbers — hence it was the biggest mover of the day," Mr Callow said.

"The pound jumped sharply, especially in anticipation of an interest rate hike by the Bank of England next Thursday."

Trump tax cuts

The Australian dollar may fall further if the US greenback continues to strengthen.

One wild card over the next few months will be President Donald Trump's proposed corporate tax cuts, which he has been promising since he ran for office last year.

"If the tax package contains a lot of company tax cuts, that will be strong for the US dollar," Mr Grace said.

"It's estimated these tax cuts will amount to an economic stimulus of about a 0.8 per cent GDP boost every year for the next 10 years."

However, Mr Grace emphasised this depends very much on the details of the US corporate tax cuts, and whether it becomes law.

"Even the Republican senators with the worst relationship with the President are on board to pursue these 'tax reforms' so something will be passed at some stage," Mr Callow said.

I have always said and still say debt is not bad. It is a tool like a lever. You can use it responsibly to help you buy a long term asset or you can do the opposite and irresponsibly mortgage the farm and bet on the come like some retailers. The debt is not the problem, the decision makers are the problem.

The reason isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.

A 13% interest rate for a "high end" name brand like Nordstrom is pretty amazing considering that the prime rate is 4.25% and typical corporate bond debt even in the BB-/Ba3 credit range tends to be sub 9% depending upon financial health. This rate is in the junk band arena despite the fact the public entity has a BBB+ rating. http://quicktake.morningstar.com/StockN ... symbol=JWN

Clearly after the analysts added the debt to the balance sheet they decided that a BBB+ rating to the final entity was not sensible.

One testament to that negativity on retail came earlier this year, when Nordstrom Inc.’s founding family tried to take the department-store chain private. They eventually gave up because lenders were asking for 13 percent interest, about twice the typical rate for retailers.

Then there are the store card credit issues.

Store credit cards pose additional worries. Synchrony Financial, the largest private-label card issuer, has already had to increase reserves to help cover loan losses this year. And Citigroup Inc., the world’s largest card issuer, said collection rates on its retail portfolio are declining. One reason that’s been cited is that shoppers are more willing to stop paying back a card from a chain if the store they went to has closed.

While not exactly retail I have recently become aware of a trend locally in NOLA regarding restaurants. Apparently with the rise of Uber and the many other take out/delivery options many of the middle and even a few of the upper tier restaurants are now doing a lot of take out dinner trade. This can be explained in part by the novelty but also due to the convenience, the fear of crime at night and the so called "cocooning" trend.

Now the restaurants still have patrons eating in (like me, I hate take out) but they are getting extra turns of kitchen by catering to these take out apps. So this e-commerce trend is actually good for the restaurants.

China injected nearly $130 billion into its market in the last two weeks to quell a bond rout

The People's Bank of China is seeking to balance market sentiment with its need to crackdown on debt

Rapidly expanding liquidity could make it more challenging for Beijing to counteract capital flight — its relatively static foreign exchange reserves are growing less potent when compared to the amount of cash that could be leaving the country

By Huileng Tan | @huileng_tan CNBC.com

China has been pumping a lot of cash into its system to lift market sentiment, as the world's second-largest economy walks a thin line between curbing debt and keeping everything running smoothly.

Last week, the People's Bank of China injected cash totaling 810 billion Chinese yuan ($122.4 billion) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said.

"Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment," said Ken Cheung, a foreign exchange strategist at Mizuho Bank who focuses on Chinese currencies and monetary policies.

Nomura analysts said last week in a note that the bond rout was due to fears of regulatory tightening from Beijing. Bond yields, which move inversely to prices, briefly hit 4 percent in China for the first time in three years.

A rise in the benchmark government bond yield threatens to drive up overall borrowing costs — and potentially worsen the country's debt situation.

On Monday and Tuesday of this week, the PBOC injected a net 30 billion yuan ($4.5 billion), but it didn't expand that money supply on Wednesday. Analysts said that pause may have been due to market sentiment seemingly stabilizing, but it may be short-lived.

As Chinese 10-year yields are still near the psychologically important 4 percent level, Cheung told CNBC he expects more injections ahead if necessary, as Beijing needs to "maintain liquidity to please the market."

The PBOC's daily cash injections is done through the issuance of reverse repurchase agreements, or reverse repos. That's a process by which the central bank buys securities from commercial banks with an agreement to sell them back in the future at a higher price.

Conducted through open-market operations — daily, in the case of China — repos are a common money market instrument used for short-term funding between banks around the world.

The PBOC relies on those operations to manage liquidity, but Mizuho's Cheung said the central bank will keep expanding its toolbox in the future.

Despite the recent moves, the PBOC will keep a cautious stance, analysts note, as authorities continue to balance growth and debt deleveraging.

In fact, the PBOC highlighted in its third-quarter monetary policy report the need for financial stability and reiterated prudent management of the economy.

"We read this as a sign that financial deleveraging will be a multi-year theme and that deepening financial reforms are underway," Nomura analysts said in last week's note, adding that the market is pricing in maintenance of a prudent monetary policy stance.

Indeed, the PBOC drained a net 465 billion yuan from the money markets through open-market operations from the beginning of the year until November 10, Reuters calculations show.

Beijing officials have been outspoken recently about financial risks in the country, which is beset by high levels of debt, and investors are worried about a domino credit event unfolding. That being the case, it makes sense for the central bank to want to avoid overheating the economy with too much cash.

How Chinese liquidity can go very wrong

Even though many investors believe the financial risks in China are controlled due to its strong top-down control, the world's second-largest economy is still subject to external risks that can cause a crisis.

One factor that's making China more susceptible is the fact that its money supply has been growing at a very rapid pace while its foreign exchange reserves stay basically static.

"With the foreign exchange reserve being relatively fixed, foreign exchange reserve as a share of money supply has fallen from 40 percent just five years ago to 10 percent today," Victor Shih, a professor and China expert at UC San Diego, told CNBC.

The foreign currency reserve is a primary tool for managing currency values — an important issue for China — and the increasing base of liquidity should continue to dilute its power, Shih added.

Over time, as the ratio declines, it will get harder for the FX regulator to counteract capital flight: Beijing keeps money in its system (and the yuan strong) by buying up its currency in international markets with its horde of foreign cash. So if there's more RMB to buy, then the reserves won't go as far. Shih suggested such a situation could eventually "wipe out" the reserves entirely.

That would leave Asia's largest economy exposed to outside shocks.

"That is a great weakness of China, it's something external, especially if we have things like multiple rate hikes in the Federal Reserve," Shih said.

The euphoria from the year-end melt up in Europe and the US failed to inspire Chinese traders, and overnight China markets suffered sharp losses, with the Shanghai Composite plunging 2.3%, its biggest one day drop since June 2016, over growing fears that the local bond rout is getting out of control. Both the tech-heavy Chinext and the blue chip CSI 300 Index dropped over 3%, as the sharp selloff accelerated in the last hour, as Beijing's "national team" plunge protection buyers failing to make an appearance. There were sixteen decliners for every one advancing share.